Is It All About Who You Know? Prior Work Connections and Entrepreneurial Success

34 Pages Posted: 18 Oct 2015 Last revised: 4 Sep 2018

See all articles by Sarada

Sarada

University of Wisconsin - Madison - School of Business

Oana Tocoian

UC San Diego; Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: February 1, 2018

Abstract

This paper studies how prior professional connections among founding employees predict a new firm's short and medium term success. We apply three employment network measures to a large employer-employee matched Brazilian panel dataset, to find that network structures are strongly predictive of both firm survival and growth, even when controlling for a wide host of human capital, firm, and sectoral characteristics. All else equal, new firms with previously connected founding members experience higher survival odds but slower early growth. These results suggest that working with former co-workers -- with whom informational asymmetries are presumably resolved -- increases compatibility and resource sharing, qualities which are vital to new firm survival. Firm growth, on the other hand, appears to benefit from a more diverse resource set, which is facilitated by drawing on individuals from a variety of backgrounds. Results are consistent across most sectors, initial firm sizes, and other sample selection criteria.

Keywords: Entrepreneurship; employee networks; firm performance; founding teams

JEL Classification: L26, L14, L25, J21

Suggested Citation

Sarada and Tocoian, Oana, Is It All About Who You Know? Prior Work Connections and Entrepreneurial Success (February 1, 2018). Claremont McKenna College Robert Day School of Economics and Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2650627

Sarada (Contact Author)

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Oana Tocoian

UC San Diego ( email )

9500 Gilman Drive
Mail Code 0534
La Jolla, CA 92093-0534
United States

HOME PAGE: http://www.oanatocoian.com

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

HOME PAGE: http://claremontmckenna.edu/pages/faculty/OTocoian/

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